The Finance Committee of the Reserve Bank of India (RBI) has been meeting since Wednesday. The RBI will present its monetary review today. In the midst of the corona epidemic, the biggest challenge is to declare a financial review by coordinating economic challenges such as skyrocketing inflation and unemployment. There are three major challenges ahead of the current committee, after which it may be difficult to make the decision to reduce the repo rate for the seventh consecutive year.
Challenge Number 1: Controlling Increasing Inflation
The first challenge before the RBI Finance Committee is to control inflation. Food prices have risen sharply over the past few months following the second wave of the corona epidemic. Increases in petrol and diesel prices have played a major role in driving inflation. The commodity has increased due to the diesel price, which has worked to increase the price of all things. With this, retail inflation reached 6.26 in June. This is more than the RBI target of 4% (+, – 2%). The biggest challenge is to control it as soon as possible by the RBI.
Challenge Number 2: Accelerate the pace of development
The central bank estimates that the GDP growth rate for the current fiscal year is 9.5 percent. The RBI tries to follow its estimates. However, some indicators of the economy may cause concern for the RBI, with the PMI service at the top. Service sector performance was poor for the third consecutive month in July.
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According to the report, service sector data for July was disappointing. There has been a decline in new business and production in the last one month. Service sector companies have cut jobs due to low demand and fears of further weakness. If the RBI is to accelerate the growth of the economy, the service sector must be accelerated. Everybody cares about what steps the RBI takes to do this.
Challenge Number 3: Taking steps to increase liquidity in the market
If the economy is to accelerate, the RBI needs to increase demand in the market, economists say. For this, the central bank needs to take steps to increase liquidity in the market. It is hoped that the Reserve Bank of India may restart the government’s securitization program to increase the flow of financial resources in the economy that is suffering from the Kovid 19 crisis. In addition, corona can offer special loans to areas most affected by the epidemic.
The liberal stance may remain intact
The RBI can maintain its comfort stand without compromising its core target of inflation. Because of this, the expectation of a reduction in interest rates will remain in the coming days. Once inflation is brought under control, the RBI can once again offer a cheap loan. Currently, the central bank’s focus is on managing inflation and promoting economic growth.
Policy rates are not likely to change
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), which sets key policy rates, will publish the financial review on Friday. Experts say the RBI can opt for the status quo without changing interest rates. Significantly, for the sixth consecutive year, the central bank did not change the prime interest rate at the June policy meeting to 4 percent.
